Obamacare’s Blue State Money Laundry

When Maryland’s Attorney General announced last summer that his office had negotiated a settlement whereby $45 million would be recouped from the IT contractor that botched the state’s Obamacare exchange, it was widely reported as good news for taxpayers. It appeared that their investment in the mismanaged project would not be a dead loss. But the AG’s statement included this curious passage: “The agreement… will lead to the recovery of funds for both Maryland and the federal Centers for Medicare and Medicaid Services [CMS].” What’s so odd about that? Well, the state didn’t contribute any money to the project.

All of the money used to build the failed exchange, as well as its hastily constructed replacement, came from federal start-up grants. Maryland received more than $179 million in such grants. About $73 million was paid to the original contractor, Noridian Healthcare Solutions, and another $41 million was paid to the firm that cleaned up the mess. Yet, according to the Maryland AG’s office, the state is in negotiations with CMS concerning how the $45 million will be divided. But why would Maryland receive any part of the settlement if all the money used to build and repair the exchange came from Washington?

This very question, as it happens, occurred to Senate Finance Committee Chairman Orrin Hatch when he got wind of the Maryland deal. Hatch’s committee has been pressing Obama administration officials for information on their plans to recoup billions in federal tax dollars that have disappeared into the coffers of states that followed Obamacare’s directive to set up insurance exchanges. Only fourteen, all controlled by Democrats, set up these “marketplaces.” And, like Maryland, they used federal grants to do so. Those states, along with the District of Columbia,spent more than $5 billion to launch their exchanges.

Despite such federal largesse, most state-based exchanges (SBEs) quickly ran into fiscal difficulties, and Hawaii, Maryland, Massachusetts, Nevada, and Oregon eventually abandoned theirs. Having seen this coming, Senator Hatch and his committee had already questioned HHS Secretary Sylvia Burwell and former CMS head Marilyn Tavenner about the cost of replacing the failed SBEs with federal exchanges and how the taxpayers would get back the money squandered by these states. The responses were hopelessly inconsistent. Burwell said her department would “get those funds back.” Tavenner said it was a “state matter.”

Thus, shortly following the announcement of the Maryland agreement, Senators Hatch and two other finance committee members wrote to acting CMS administrator Andrew Slavitt requesting clarification of his position on recouping the squandered grant money: “Will the federal government award states with recouped grant windfalls after the failure of their SBEs? Or will recouped SBE grants be returned to the federal treasury?” The senators requested an answer to their letter “no later than August 21, 2015.” According to a Senate Finance Committee spokesman, however, Slavitt had not deigned to respond as of last Friday.

This is, of course, nothing unusual for an administration that routinely disregards congressional oversight. Still, considering that Slavitt has not been confirmed as the permanent head of CMS and that public interest groups spanning the political spectrum oppose his appointment due to obvious conflicts of interest, it stands to reason that he would be anxious to assure the Senate that there is no skullduggery afoot. Yet it is a virtual certainty that Slavitt is supervising the negotiations between CMS and Maryland concerning how the spoils of the Noridian agreement will be divvied up, a role for which he possesses no legal authority whatsoever.

The implications of this are disconcerting considering the recent tendency of the Courts to permit Obama administration officials to ignore the law. Maryland is by no means the only state to take legal action against IT contractors pursuant to the failure of an SBE. Oregon has, for example, sued Oracle for $300 million on the same grounds. Oregon’s AG described the goal of the lawsuit thus: “Through this legal action, we intend to make our state whole.” Note the implicit assumption that any settlement emanating from the suit would go to the state. Yet, like Maryland’s SBE, Oregon’s failed exchange was built entirely with federal grants.

If Andrew Slavitt rewards the spectacular failures of Oregon and Maryland by diverting tens of millions in federal grant money to the slush funds of incompetent state Democrats, he will be overstepping his legal authority as the acting or permanent Administrator of CMS. Even worse, he will have created an irresistible incentive for corrupt Democrat “leaders” of other states who will attempt to convert squandered Obamacare start-up grants into undeserved windfalls by suing IT contractors whose “failures” have probably been, as Oracle suggested in a countersuit against the state of Oregon, the result of interference by incompetent and corrupt politicians.

One of the first orders of business for the Senate Finance Committee, now that Congress has reconvened, should be to schedule a hearing for purposes of forcing Andrew Slavitt to reveal what his role has been in the negotiations between CMS and the state of Maryland over the proceeds of the Noridian settlement. If he admits to any involvement in these talks, he should be questioned at length concerning what rational or legal claim Maryland or Oregon could possibly have on federal taxes paid by millions of Americans, most of whom neither live nor work in the states whose exchanges were so incompetently managed that they imploded.

There is, of course, no legitimate argument that Slavitt could make that would justify giving recouped federal grants to any state. Thus, if Slavitt admits any involvement in the negotiations between his agency and the Maryland AG’s office, or even knows that such discussions are underway, he should be asked to withdraw his name from consideration for the position of CMS administrator. The money in question belongs in the U.S. Treasury if not in the pockets of the taxpayers, and anyone who claims otherwise is either corrupt or incompetent.